It is a fairly innocuous word generally, but we have all come to fear it greatly — bubble.
If it is not made of soap and water, it is a thing to be feared. Property bubble, Internet bubble, tech bubble — they are all bad.
That is what David McWilliams was talking about in a recent blog post entitled “All that tech glitter is not gold”, where he described the wave of enthusiasm around the recent Web Summit. Everyone was infected with the atmosphere of ‘can do’ attitude and enthusiasm for the ‘next big thing’. All of which are to be taken in the context of making money, lots of it.
McWilliams warns that this attitude, coupled with low interest rates is a recipe for disaster.
“Lower and lower interest rates are driving cash out in search of the next big thing and, in a world awash with cheap money, it is easy to lose sight of the basics, like profits and value. The sheer momentum of the bubble bulldozes any critical thinking,” wrote McWilliams.
McWilliams makes an important point about tech bubbles, where many an investment is made in search of the next big thing, but he says that this is often done without due regard for profitability from these new tech companies, or value from their products.
In fact there is a joke about just that which beautifully illustrates the point. A billion people walk into a bar in California. They make a lot of noise, attract a lot of attention, no one buys anything and the whole thing is declared a complete success.
McWilliams’ is a fair point and well made, but it does overlook a very important thing which is unique to the tech space – often, the value of a new technology is not apparent until it is developed, working and deployed. That means, someone has had an idea, developed it, turned it into a working prototype, perhaps deployed it in a public space and then had people use it.
Look at it this way, would an investor have gone for the pitch for Twitter before it was ever in the public domain? I think not. But that’s the incongruity of tech – often times the value is not apparent until people derive it for themselves. The same could be said of Facebook, or Foursquare, or for Angry Birds for that matter.
Alas, in pointing this out, I wish I could be more helpful in helping people to determine ahead of time where the value is likely to be in emerging technologies. After twenty years in the game, if I was any good at that, I would not be here writing this, I would be enjoying my own south pacific island while trying to think of the next mad thing I’d like to spend money on. Has anyone seen the plans for the SR-72?
But McWilliams warns that the potential for disaster are greater than ever, primarily due to the sums involved being, well, you get the picture.
“Billions of dollars will be lost in this tech industry in the coming years,” McWilliams warns, and he’s only right, you know.
So, what is to be done? Well, one might as well tell people not to dream as tell them that most of these potential technologies are worthless. Venture capitalists and investors of all sorts are out there looking for the next breakthrough technology that will sell a billion and make them rich beyond the dreams of avarice. But McWilliams standards of profitability and value are still worth holding onto, even if they are more difficult to apply in the tech space than elsewhere.
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